DTEK signs USD 0.34 bln contract to modernize 3 power units

DTEK (DTEKUA), the Ukrainian integrated utilities holding, signed an agreement to modernize three power units at DTEK Zakhidenergo (ZAEN UK) and DTEK Dniproenergo (DNEN UK) with contractor Energonaladka. The total value of the contract is UAH 2,751 mln  (USD 338 mln, USD 390/kW of installed capacity). Power unit #4 at Zakhidenergo’s Ladyzhyn TPP will be modernized in 2Q-4Q 2013, unit #6 at Dniproenergo’s Kryvyi Rih TPP will be modernized by end-2015 and unit #14 at Dniproenergo’s Prydniprovsk TPP by October 2014, according to the agreement.

Alexander Paraschiy: DTEK is likely to finance the projects from the recently drawn EUR 416 mln credit line (see our news of October 19). Current legislation allows the holding to receive compensation for up to 80% (actually, about 50%) of reconstruction costs from special surcharges to GenCos’ electricity tariffs, which will make the projects’ payback period just 3-4 years. While we see modernization as value accretive for both DTEK and its subsidiaries, we are skeptical about the fact that the same contractor has been granted a third large contract from DTEK. Earlier this year, Energonaladka got two contracts worth a total of UAH 2,947 mln (about USD 360 mln) for the modernization of five power units at DTEK’s Dniproenergo and Vostokenergo.